If you’ve been reading this blog for a while, you may know that during our time spent in debt, we had to enter into a debt management plan (DMP) because we couldn’t afford to make the payments on our debts. We arranged with our creditors to make a lower, more manageable monthly payment whilst our finances were really bad, so that we could afford to live.
Doing this though, meant that every single month, we were defaulting on our debts because we weren’t sticking to the original credit agreements. We didn’t realise the complete impact this would have on our credit score at first because the main priority was actually surviving. It was just something that we had to do. The main impact of being in a DMP is that the defaults stay on our credit file for 6 years, after the date of the last default, making it difficult for us to get credit during that time.
We don’t want to end up in a shed load of debt again by any means but we do want to get a mortgage one day so we need to do what we can to repair our credit score to stand us in good stead for getting a mortgage when the time is right (and when we’ve saved up a huge deposit).
I keep referring to “our” credit score as I write this, because the hubby and I are associated on each other’s credit file and any mortgage we get accepted for will be based on both our scores. With that said, my own score when I last checked it a few months ago was in the high 900s, meaning that it was excellent. The DMP was in the hubby’s name only so we fully expected his credit score to be pretty dire and that we’d need to spend a long time trying to improve it.
We finally got around to checking it last week, having put it off since November! To do this, we signed up for a free trial with Experian (and then cancelled it straightaway to avoid fees)!
What’s a good credit score?
According to Experian, a credit score between 881 to 960 is good and a credit score between 961 to 999 is excellent. The average Experian credit score is 900 I believe. Imagine our surprise when the hubby’s credit score was 975?!
Obviously, we thought that there must be some kind of mistake at first, but looking at the credit report in detail, it does show that the hubby has a selection of active credit and is managing it well (our mortgage on our former home and our main bank accounts). All that shows up on the credit report as well as the defaults. We can also see that there’s no damaging footprint left on the file, where he’s made an application for credit and then been rejected, as that would have no doubt lowered his credit score.
The defaults seem to be a small section on the report but reading the small print, I’m guessing that most creditors will take those defaults into account and refuse credit on that basis even though the overall credit score is excellent. Experian can’t guarantee that anyone with a good or excellent credit score will definitely get accepted for credit so we’re taking his credit score with a definite pinch of salt. It does make me wonder just how reliable credit scores are anyway…
Maintaining and improving credit scores
There are a few things we’re planning to do to make sure that the hubby’s credit score remains high on the face of things. We don’t intend to apply for any mortgages in the forseeable future so that will avoid any rejections appearing on his file.
Some of our creditors included in our DMP have marked the hubby’s file as the debt being satisfied and the account closed. Others still list the debts as defaulted, even though there are agreements in writing to say that the debts have been settled. It’s up to the creditor’s discretion to mark the debts as satisfied and it seems some of them have decided not to do that. Still, we’re going to call them and ask if they’ll reconsider, it’s got to be worth a shot at least.
The other thing we’ll be doing is applying for a “bad credit” credit card which we know the hubby will get accepted for (already had a guaranteed offer from Vanquis in the post but will be reviewing all of the bad credit facilities out there to see which one would suit us the most).
Being able to get accepted for a credit card and then show that credit can be used properly by paying it off in full every month should really help to maintain the hubby’s seemingly “excellent” credit score.
What do you think about the reliability of credit scores? Do you have any tips for repairing bad credit?
*Image courtesy of Flickr and overlay added by Disease Called Debt.
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15 Comments
I do think credit scores hold some value but you shouldn’t rely on them completely. I have an awful credit score but am still able to have a mobile phone contract, bank account and credit card if I wanted one (I don’t want one).
I think the main reason for this is because my mobile phone contract is with o2 and I’ve been with them for a good few years. In that time I’ve always paid my bill and never been late with it.
The same with my bank. I’ve been with them many years and in the last 18 months I’ve managed my finances well. They can see this and base decisions for credit on that.
Going back to credit scores, I currently have access to Experian and Equifax and Noodle. Each one of them show a different score and different credit accounts I either have or have held in the past. This leads me to believe you shouldn’t base making decisions on the basis of just one score.
On repairing your credit I think getting a credit card such as Vanquis or similar could be a good idea. You would only need to spend perhaps £50 per month on it and then pay it back in full for a period of time to build that credibility back up.
It’s never been harder to be accepted for a mortgage or other forms of credit but I think for us that’s a good thing. I’d rather wait until we are in a position of affording something rather than struggling each month with repaying what we really can’t afford.
Ricky @ The Skint Dad Blog recently posted…Career Choices as a Young Adult
Thanks Ricky for your advice, much appreciated! There seems to be a number of factors involved, such as the length of time you’ve held an account. Very interesting that those three credit reference agencies hold different scores for you. I know what you mean about waiting until you’re in a position where you can afford a mortgage comfortably – like you, we want to do this too. I’m not great at waiting but needs must! 🙂
One tip I can share is always pay you credit card bills on time or earlier. Another one that some people may not know is that they can pay twice or more than so that they can improve their credit score and pay off debt more quickly.
Jayson @ Monster Piggy Bank recently posted…The Cost Of Protecting Your Privacy Online
Thanks Jayson! Overpaying is a great way to clear debt quickly but I hadn’t realised that by doing so, this would also improve a credit score. Thanks for the tip!
use some sort of auto bill pay just to make sure you are never late on that credit card.
Credit scores have always seemed like black magic to me. When I think my score will be awesome, it’s not. When I’m scared it’s bad, it’s decent!
Kirsten recently posted…Givling: Crowdsourcing Student Loan Payoffs
Yes, there does seem to be a kind of mystery about credit scores Kirsten! 🙂
Hi Hayley,
Re those defaults you talk about, the creditor should mark them satisfied if paid in full, or partially satisfied if you made a full and final settlement.
They will drop off the report six years after the date they were first registered. Definitely write to the creditor to get them to update their records and if not, you could contact the Information Commissioner to file a complaint.
Thanks
Rob
Rob recently posted…Hitting the ground running
Hi Rob, thanks for this advice, I’ll definitely do that and hopefully these sections will start looking a lot better soon!
My credit score dropped recently. I’m pretty sure this is because we had to close several credit card accounts with which I had a long history, as part of our home equity loan application. We’re not planning to borrow money any time soon, but I’m using another card and paying it off every month. Hopefully my score will tick back upward after doing this for a while.
Amy @ DebtGal recently posted…The Camry Saga
I’m sure it will Amy – like Chonce said, time seems to be quite important when it comes to improving a credit score. So if you keep doing what you’re doing, I think it will come good soon enough!
So far, my score has actually risen quite a bit as I get more debt paid off. I’m considering closing a few accounts though (ones that I don’t need) after they are paid off and that might hurt my utilization ratio, but it won’t hurt my length of history as long as I leave my oldest card open.
Kayla @ Shoeaholicnomore recently posted…Why I’m Never Going to Give Up Shopping
Sounds like a good idea Kayla – am I right in thinking that just one credit card (used responsibly) is all that’s needed to maintain a good credit score?
For me the best thing that helps repair my credit, is time. It sucks to wait but as I pay off my debt and reduce my credit card balances my score starts to creep up. Setting reminders each month so that I always put something toward my credit cards and my debt help me maintain a perfect payment history. I’m in no position to cancel anything since I’m still growing my credit history and depend heavily on the accounts I have open to do that.
Chonce recently posted…How I’m Saving Money on Moving
That’s great that you have a perfect payment history! I agree Chonce that waiting is one of the best things you can do when it comes to repairing credit history. I’m impatient by nature so I hate waiting to apply for a mortgage but if we don’t, I think we’ll do a lot of damage to our credit score.
For those entering into a DMP it can potentially be beneficial to ‘encourage ‘ your creditors to issue Default Notices if you feel it will take you in excess of 6 years to clear the DMP.
This can mean in say Year 7 onwards of the the DMP your credit record will not just be clear of defaults but also any mention of a DMP, if however you have persuaded a creditor not to issue a Default Notice then from Year 7 onwards instead of dropping off your credit record that debt will show as being part of a DMP keeping your Credit Score low.